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Triangular currency arbitrage starting with 1000 USD

Question

You hold $1000. The available conversions are: one US dollar buys 0.850.85 euros; 1.51.5 euros buy one pound; one pound buys 1.81.8 US dollars. Trading optimally, how much profit can you make, to the nearest cent?

Short answer

$20. Go dollars to euros (850850), euros to pounds (850/1.5≈566.67850/1.5\approx566.67), then pounds back to dollars (566.67×1.8=1020566.67\times1.8=1020). The cycle multiplies wealth by 0.85×1.8/1.5=1.020.85\times1.8/1.5=1.02.

Adapted from QuantQuestions.io; question and answer rewritten by SelfMadeQuant.com.

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